Thursday, June 30, 2016

This case sends us deep into the weeds of the distinctions
between trademark and false advertising, and approves rather onerous
requirements for apparently truthful statements about the relationship between
the parties’ products.

De Simone was one of the inventors of a probiotic that he
then brought to the US market through a partnership with VSL, marketed under
the trademark VSL#3. In 2015, De Simone
parted ways with VSL and began a partnership with ExeGi Pharma to bring his
formulation to market under the name Visbiome.
VSL alleged that De Simone and ExeGi infringed the VSL#3 mark and
falsely advertised that VSL#3 was no longer on the market or that Visbiome was
the rebranded version of that product. The court previously granted a preliminary
injunction in favor of VSL barring certain conduct by the De Simone parties as
infringing, including depictions of Visibiome that referred to it as “Original
Formula VSL#3 Probiotic Blend” and “Visbiome/VSL#3 blend”; the phrase “Same as
Original Formula VSL#3 Probiotic Blend”; references to clinical studies as
“Reported as VSL#3”; and the general statement that Visbiome is “the same” as
VSL#3.

The court also provided safe harbor language that was likely
fair use: (1) “Compare to Ingredients in VSL#3,” as long as it was accompanied
in close proximity by the disclaimers that VSL#3 was a registered trademark of,
and manufactured exclusively for, VSL, and that Visbiome wasn’t affiliated
with, endorsed by, or distributed by VSL; (2) the statement that “Visbiome
contains the same strains, in the same concentrations and proportions, as the VSL#3
probiotic blend as produced before [Date],” one time in the Visbiome materials,
accompanied by the same disclaimer; (3) accurate information about De Simone’s
role in developing VSL#3 that made clear that there was no current affiliation
between Visbiome/ExeGi and VSL#3/VSL.
E.g.,

In the mid-1990s, Professor Claudio De Simone, M.D. invented a proprietary
blend of probiotic strains and collaborated with VSL Pharmaceuticals, Inc. to
produce and market it as ‘VSL #3,’ a trademark owned by VSL Pharmaceuticals,
Inc. In 2014, Professor De Simone decided to leave VSL Pharmaceuticals and is
now collaborating with ExeGi Pharma, LLC to produce Visbiome, a probiotic using
the same proprietary blend of probiotic strains that De Simone originally
invented.

ExeGi launched Visbiome on February 1, 2016, the day after
the agreement between VSL and Danisco, the original manufacturer of VSL#3 and
current manufacturer of Visbiome, expired on January 31, 2016. ExeGi issued a press release and a LinkedIn
posting using the safe harbor language with a disclaimer in a footnote. The press release also redefined the strains
and concentrations in VSL#3 as the “De Simone Formulation,” to indicate a
continuity with VSL#3 without the actual use of that trademark, and asserted
that the De Simone Formulation had undergone numerous scientific trials and was
the subject of “over 60 peer-reviewed studies.”

The press release also said: “The license agreement between
Professor De Simone and VSL Pharmaceuticals, Inc., which provided VSL
Pharmaceuticals, Inc. the rights to market the De Simone Formulation using the
‘VSL#3’ trademark, expired on January 31, 2016.” Likewise, on LinkedIn, ExeGi sent a message
to its 85 LinkedIn followers stating: “Have you prescribed the medical food
VSL#3 in the past to your patients with IBS, Pouchitis or Ulcerative Colitis?
The De Simone formulation you’ve been prescribing to your patients will now be
available as Visbiome.” The posting did
not contain the disclaimer.

After further infighting, the court issued an additional
order requiring ExeGi to remove the language about license expiration from
future communications and generally refrain from stating or suggesting that the
license agreement had expired or that VSL#3 wouldno longer be on the market,
and include the disclaimer in close proximity.

VSL objected to statements on the Visbiome website (multiple
uses of the safe harbor statements, references to clinical trials that included
VSL#3 in their titles, and claims to exclusivity of the formulation), ads that
appeared in response to Google searches, and statements made by ExeGi sales
representatives and the sales training materials they received and used. [I note, with respect to the clinical trials,
if they really did use VSL#3 in their titles, and if ExeGi really is using the
formulation tested, there would appear to be a severe First Amendment problem
with banning any references to those trials.
The court focused on the fact that the
webpage listing studies didn’t contain a disclaimer or explain why VSL#3 was
being referenced.]

ExeGi used both static and dynamic AdWords ads. Static ads
display pre-drafted text, while dynamic ads incorporate searched-for keywords
into the text of an otherwise pre-drafted ad. “A line of code for a dynamic ad
might read ‘Best treatment for {keyword},’ with the user’s search term to be
inserted in place of ‘{keyword}’ when the ad appears.” For its static ads, ExeGi used ads such as
one beginning “Have You Ever Used VSL#3?/If So, Check Out Visbiome….” For dynamic ads, it used ads such as one
beginning “{ Keyword: Have You Ever Used VSL#3}/If So, Check Out Visbiome….” The ads didn’t have a disclaimer, and some of
the ads actually appeared as “VSL#3/www.visbiome.com/If So, Check Out Visbiome
High-Potency Probiotic….” VSL’s expert
witness on AdWords and SEO testified that this truncation to the keyword alone occurs
“when the proposed dynamic headline, including the keyword, would exceed 25
characters.” ExeGi maintained that it
never intended for VSL#3 to appear by itself without the question, and it paused
the ads when Google was unable to explain the truncation.

VSL’s expert witness also said that Visbiome’s website showed
“keyword stuffing”: repeatedly using VSL#3 to increase the likelihood that
Google’s search algorithm will associate the website with that term and thereby
increase the prominence of that site in search results relating to that term. “VSL”
was the second most frequently used term on the Visbiome website, used even
more frequently than “ExeGi.” “VSL#3” frequently appeared “below the fold,” “a
placement that may indicate that the term is used more to influence the search
algorithm than as text intended for website users.” ExeGi responded that it put the Disclaimer on every page of the website to be responsive to
VSL’s concerns, at the bottom of the page in a “black box” to signal its
importance to medical professionals.

VSL also complained that ExeGi sales reps told people in at
least three doctors’ offices that VSL#3 was no longer being sold.

VSL moved to hold the De Simone parties in civil contempt,
which requires violation of the terms of a valid decree that caused harm to the
movant. There is no requirement that the violation be willful. But, because intent is irrelevant, the order
allegedly violated must be one that sets forth in “specific detail an
unequivocal command.”

VSL argued that the use of the safe harbor statements on the
Visbiome website was excessive and the disclaimer wasn’t close enough to the
use of the mark. The court found that it
was unreasonable for the De Simone parties to interpret the term “only once in
the Visbiome materials” as permitting multiple uses on the Visbiome website, up
to once on each individual page of the website.
Thus, they violated the spirit of the order, though not its letter, because
the order never expressly barred any particular number of uses of VSL#3 or
other approved language. The multiple
uses went outside the safe harbor, which was for a single use, but didn’t
violate the order. The order also
required the disclaimer to be in “close proximity” to use of VSL#3, and the court
found no violation there—sometimes the disclaimer was in text shortly after the
reference to VSL#3, and when it was in a footnote, it had the same font, same
size, and same color as the main text. “The use of a footnote and placement of
the Disclaimer ‘below the fold’ may reduce the likelihood that a user will read
it, but with Visbiome’s own content at times requiring the reader to scroll
down, the Court cannot say that there is clear and convincing evidence that
ExeGi has placed its required disclaimers at a distance too far from the VSL#3
mark to satisfy the requirement of ‘close proximity.’”

However, the court was “troubled” by the lack of footnote
reference markers next to the term VSL#3 when it was used in study names. This appears to me to be excessively
formalistic. Anyone looking at the
references would likely have plenty of opportunity to see the disclaimer
already, and as the court itself noted, readers would need to understand the
relationship between VSL#3 and Visbiome to understand why these were listed as
references. But the court reasoned otherwise: “The failure to direct the reader
to the Disclaimer substantially decreased the likelihood that it would be
noticed, so this omission could be viewed as indicating an intent to obfuscate
the fact that the clinical trials were performed on a product offered by a
different company.” Still, the
disclaimer was at the bottom of the clinical references page, and so there was
no violation of the order.

The court did find the De Simone parties in contempt for the
AdWords ads. “While the Court agrees
that the headline ‘VSL#3,’ accompanied by no other text, would appear to be an
aggressive attempt to co-opt the VSL#3 mark, the Court has issued no orders
barring advertising through Google AdWords, employing dynamic ads, or using
VSL#3 as a keyword for such ads, so the fact that a dynamic ad resulted in such
a headline, intentionally or unintentionally, does not specifically implicate
any of the Court’s prior orders.” But
the disclaimer was required, and several of the AdWords ads didn’t have it. Even if AdWords text didn’t have enough space
for the disclaimer, the court’s order provided no exceptions for space
limitations in particular advertising media.
Nor was “close proximity” satisfied by having the disclaimer available
once someone clicked on the ad. “The De
Simone Parties’ interpretation of proximity as ‘one click away’ defines that
term as a physical act, not a measure of distance, and thus cannot be deemed a
reasonable interpretation of the language of the February 2016 Order.” (I think it’s a bit odd for the court to say
that proximity requires physical distance in this context, but ok.) This shifted the burden of compliance to
Google’s users, who needed to click to see the disclaimer.

The court also found that the initial use of the statement
that the De Simone formulation was “exclusively available” from ExeGi, coupled
with the website’s assertion that the De Simone Formulation is the same as that
used in VSL#3, led to “the unmistakable conclusion that VSL#3 is no longer
available for sale,” thus violating the court’s order. The De Simone parties might have intended
only to go up to the acceptable line, but they crossed it. By contrast, statements that De Simone was
“collaborating exclusively” with ExeGi “merely states that De Simone has
changed companies and does not suggest that VSL#3 is no longer on the market.” (Interesting how thinly the court is slicing
this, given that the targeted consumers probably don’t make these distinctions—or
care.)

The court then turned to VSL’s false advertising claims,
which turned on ExeGi’s claims to exclusivity/claims that VSL#3 had been
discontinued. Given that VSL had
stockpiled the older formulation of VSL#3 and could still sell it, plus the
fact that VSL was going to reformulate the product, these claims were false or
misleading. De Simone’s statement “my
formulation is now exclusively available from ExeGi Pharma” as Visbiome was
likely literally false while VSL’s plentiful stockpiles were available. This was likely to harm VSL; the court noted
that when an ExeGi sales rep made similar statements to one gastroenterologist’s
office, that office accepted Visbiome samples and declined to accept any more
VSL#3 samples.

However, the court found that the sales reps’ statements
weren’t likely to constitute advertising or promotion. The Fourth Circuit hasn’t interpreted that
language in the Lanham Act. The court
cited the Seventh Circuit’s since-renounced holding that for purposes of a
false advertising claim, “[a]dvertising is a form of promotion to anonymous
recipients, as distinguished from face-to-face communication.” First Health
Group Corp. v. BCE Emergis Corp., 269 F.3d 800, 803 (7th Cir. 2001). [See Neuros Co., Ltd. v. KTurbo, Inc., 698
F.3d 514 (7th Cir. 2012)]. But the court here agreed with the Second Circuit that
such a reading “collapsed the disjunctive statutory language ‘commercial
advertising or promotion’ into only commercial advertising.” Using the relevant parts of Gordon & Breach, the court followed
the Second Circuit’s lead, looking for (1) commercial speech; (2) for the
purpose of influencing consumers to buy defendant’s goods or services; (3) disseminated
sufficiently to the relevant purchasing public to constitute “advertising” or
“promotion” within that industry. Element (3) was not satisfied on the present
record. Since Visbiome’s launch, ExeGi
sales reps had made sales calls at about a thousand doctors’ offices; three
alleged instances of false statements weren’t sufficient in that context.

VSL argued that the court should consider the sales reps’ statements
as part of an organized campaign along with the website statements and find
them collectively to qualify as “widespread dissemination.” The court here declined to hold that “face-to-face
statements could be combined with distinct forms of commercial advertising,
such as websites or press releases, to satisfy this requirement.”

The court presumed irreparable harm because the literally
false statements were functionally comparative advertising. The public interest
is against misleading advertising, and so a more expansive preliminary
injunction was warranted.

“The evidence presented has amply established that the De
Simone Parties’ activities in all three areas continue to be likely to cause
confusion over whether Visbiome and VSL#3 are the same product.” I note that stated this way, this is purely
false advertising, not confusion over source or sponsorship—and if they have
the same formulation, reasonable consumers might well consider them to be the “same
product.” Nonetheless, the court proceeded as if this were a trademark
case, holding that the repeated use of VSL#3 on the Visbiome website went too
far. The court cited 15 U.S.C.
§1115(b)(4) and descriptive fair use cases, not nominative fair use cases, even
though the use is very clearly not descriptive in the ordinary trademark sense. Also, this result highlights the silliness
that the “too much” inquiry can lead to—the ultimate question should be “is this
use confusing?” and the fact that a website has a single footer that it uses on
every page doesn’t plausibly increase the likelihood of confusion.

The court also didn’t like that the disclaimer frequently
appeared only in a footnote at the bottom of the page, “barely within ‘close
proximity’ to the VSL#3 mark.” So too with the references to clinical trials, which the court previously allowed “so
long as the VSL# 3 trademark was not used in such references,” and the De
Simone parties’ use of the added parenthetical “Reported as VSL#3” in
connection with clinical studies was expressly barred by the prior court order.
In the court’s view,

the combination of the repeated
claim throughout the website that the De Simone Formulation has been the
subject of over 60 clinical trials and this listing of numerous clinical
studies with VSL #3 in the title without a cross-reference to the Disclaimer
creates significant confusion whether VSL#3 and Visbiome are the same product.
Even if ExeGi has a reason to refer to those studies because Visbiome is, as a
scientific matter, the same formulation that was subjected to those trials,
that scientific equivalence cannot be used as an opportunity or excuse to erode
VSL’s trademark.

And here we have the guts of the problem: “eroding” a
trademark isn’t actually a claim under the Lanham Act. If the use causes confusion as to source or
sponsorship, that’s trademark infringement, but the court seems to think that
confusion over what’s in Visbiome
(which might be understanding, not confusion!) is also trademark
infringement. The classic Smith
v. Chanel case, like many others,
makes clear that the remedy for this latter claim, if it’s false, is in false advertising.

In fairness, the fact that trademark now is so expansive and
covers immaterial confusion makes it easy for the court to conflate the
two. The court appealed to testimony
from one staff member in a doctor’s office who apparently came to believe that
VSL#3 had changed its name to Visbiome, which “implicates not just false
advertising concerns, but also trademark infringement concerns, because the
staff member appears to have believed that Visbiome was the same product, made
by the same company, as VSL#3.” I do
note that this testimony appears to have been submitted by an affidavit
solicited by VSL, without too much inquiry into how much the staff member distinguished
between the two propositions (what's in the product/who sold the product in the US) or cared.

One useful feature of nominative fair use, for all its
flaws, is that it insists on the basic right of people in the market to make
truthful claims. If, as I expect is the
case, some set of consumers will always understand “Visbiome has the
formulation that used to be available in VSL#3” to indicate some continuity
between the responsible companies (which is at least true-ish in this case!),
that shouldn’t prevent the seller from stating the truth of that fact. We can pile on further disclaimer
requirements, but most disclaimers don’t work, so this is often just courts
making themselves feel better about inevitable confusion. In this situation, perhaps, doctors will have
an incentive to listen and learn that “VSL#3 is still on the market, but with a
new formulation, and we’ll be the only supplier of the formulation you know and
love once stockpiles of existing VSL#3 run out.” But that’s probably rare.

The court also found that prior statements on the website, “asserting
that the formulation used in VSL#3 was now ‘exclusively available’ as Visbiome,
created additional confusion whether VSL#3 had simply been renamed as Visbiome.” Again, the court is mushing together two
questions—who produces Visbiome (a particularly tricky inquiry given that, in
fact, VSL#3 used to get its formulation from the same manufacturer now
providing it only to ExeGi in the US) and what’s in Visbiome. A reasonable consumer could easily understand
these claims to be about what’s in Visbiome, and as far as I can tell from what’s
written in the opinion, that interpretation renders the claim true, with the exception
of the stockpiled VSL#3. The court doesn’t even indicate that the inactive
ingredients differ.

The court found that ExeGi’s use of this language was “a
telling indicator of ExeGi’s market posture,” which was to use VSL#3 “to define
what Visbiome itself is. The Court therefore can draw no other conclusion than
that ExeGi has and continues to use the VSL#3 mark on the Visbiome website in a
way that creates confusion and thereby enables Visbiome to impermissibly ‘profit
from another’s reputation.’” Why this
isn’t the same mechanism used in Smith v.
Chanel is an open question.

For AdWords, VSL didn’t argue that mere use of VSL#3 as a
keyword would be infringing, and there wasn’t enough evidence to find that the
De Simone parties were “keyword stuffing”; search results showed Visbiome
appearing as part of one of ExeGi’s Google AdWords ads, but not as a result of
organic search results, and the court noted that, in recent years, courts have
understood that such conduct probably doesn’t improve search ranking anyway. However, the Google ads using just VSL#3 in
the top line “exacerbated the confusion in the marketplace between Visbiome and
VSL#3.”

The court declined to treat the De Simone parties as
adjudicated infringers required to keep a “safe distance” from VSL’s mark, in
the absence of a final ruling on the merits.
The court declined to prohibit use of VSL#3 entirely, but expanded the
injunction given the De Simone parties’ demonstrated willingness to “go as
close as possible to any line drawn by this Court.”

As a result, the De Simone parties were allowed to use the “same
strains” language and “De Simone history” language only once on the entire
Visbiome website, with the disclaimer in immediately adjacent text, not a
footnote. [I wonder if you could change
the website so that it was just frames for other parts, so that these always
stayed on top ….] “Any other phrases using VSL#3 must be approved by the Court
and may appear only once on the website, again with the Disclaimer in the
immediately adjacent text.” They had to
remove the footer from any page that didn’t use VSL#3 in text.

Further, the website couldn’t claim that any clinical study
using “VSL#3” in the study title constituted a study relating to the “De Simone
Formulation” and couldn’t not list such studies on the website or the package
inserts. [Hold on! I take it that all the studies, whether or
not they used VSL#3 in their titles, used VSL#3 on their subjects. Thus, the parties
seem to agree that it’s truthful to refer to studies that used VSL#3 to show
the likely effect of Visbiome on patients.
Given these predicates, how is this injunction compatible with the First
Amendment? Either it’s truthful to
attribute VSL#3 results to the formulation, or it’s not; that can’t turn on the
study’s name.]

AdWords text couldn’t include VSL#3 unless the court
approved text including the substance of the disclaimer. And the DeSimone Parties had deliver to each
medical office on its sales list a letter, with language pre-approved by the court,
stating that VSL#3 has not been discontinued or scheduled to be discontinued,
that VSL#3 did not change its name to Visbiome, and that Visbiome is a
competing probiotic produced by a different company. The letter couldn’t
address the status of licensing agreements or rights to produce a probiotic
using the same formulation as VSL#3 prior to January 31, 2016. [But could the letter say that VSL#3’s formulation
will change? Because that seems like
really, really important information for people to know, if they have patients
who are doing well on the formulation.]

While the case was pending, “all Visbiome promotional and
marketing materials, including the website, package inserts, sales scripts, and
any other materials to be provided to or used in discussions with potential
customers or medical offices” had to be submitted to VSL’s counsel and, if
there were disputes, preapproved by the court.

As for false advertising, the De Simone parties were
enjoined from misleading customers and medical professionals into believing
that (1) VSL#3 is or will in the future no longer be on the market; (2) that
the De Simone Parties were the exclusive provider of the De Simone Formulation
or the probiotic formulation in VSL#3; (3) that VSL#3’s license to sell this
formulation has expired or would expire; (4) that VSL#3 had a new name or that
Visbiome was a rebranded version of VSL#3.

The court found that
Woodard didn’t allege sufficient facts showing Zoco, Harpo, and Sony engaged in
a joint venture or civil conspiracy with Dr. Oz to fraudulently promote the products,
or that they were liable through an agency relationship or aiding and abetting.
However, the court declined to dismiss various consumer protection claims
against Dr. Oz.

The court briefly
dealt with the argument that Dr. Oz’s statements weren’t commercial speech,
because Dr. Oz didn’t propose a commercial transaction in any of his challenged
statements and repeatedly told viewers of his television show that he did not
promote or sell any of the Products. However, the complaint alleged that Dr. Oz
informed viewers of his show that specific brands of commercial weight loss
products were effective. Moreover, the Complaint alleged that Dr. Oz was paid by the
manufacturing defendants in exchange for promoting the products. That was
enough under Kasky v. Nike.

Although defendants
argued that California’s anti-SLAPP law applied, FRCP 56(d) overrode it for
discovery purposes. Woodard was entitled
to discovery about the relationships between Dr. Oz, the other media
defendants, and the manufacturers, to determine whether the speech at issue was
in fact commercial speech. The court
thus declined, at this point, to shift fees under the anti-SLAPP law.

Friday, June 24, 2016

Read them here. The Copyright Office has indicated, unwisely, an intent to make DMCA registrants re-register every three years, which will set up another hurdle for ISPs and encourage copyright trolls.

Midwestern refiled,
claiming misleadingness and unjust enrichment.
[Discussion of GNC’s
wrongheaded description of state consumer protection statutes omitted.] Given GNC,
Midwestern’s amended complaint alleged misleadingness, claiming that ads that
cited the study on which Riddell relied were misleading because the youth
helmets at issue were not examined in the study.

Riddell argued that
Midwestern’s theory of misleadingness contradicted its earlier claims of literal
falsity (since Midwestern had to concede that the claims were “literally true”
but misleading). The court disagreed, because that’s not how allegations in superseded
complaints work. Also, Midwestern didn’t
need to identify any particular statement as “literally true”; it was enough
under GNC to identify a statement
that was misleading. “This central
allegation, that Riddell used the Pittsburgh study to suggest a safety benefit
for youth Revolution Helmets even though it was a different class of helmets
that was subject to testing, provides enough basis to plausibly support a claim
for false advertising.” Midwestern didn’t
need to plead with more specificity what the differences between the helmets
were.

For causation,
reliance, and injury, it was enough to plead that,

[b]ecause Riddell’s claims were included in advertisements, marketing,
and sales presentations, a reasonable consumer would likely be misled into
believing that the Revolution Helmet will reduce concussions, and may do so by
31%. This allowed Riddell to capitalize on consumer confusion and charge a
premium price of approximately $50 for the Revolution Helmet, which reflected
the illusory safety benefit of its “Concussion Reduction Technology.”

The complaint also
satisfied Rule 9(b) by alleging that Midwestern purchased Revolution Helmets on
an annual basis since 2002 and that Riddell made concussive reduction
technology claims through a number of advertising channels at that time and up
to the present day.

Likewise Midwestern plausibly
stated a claim for unjust enrichment under West Virginia law by alleging that a
benefit was conferred on the defendant when it knowingly collected a market
premium for its youth helmets thanks to its misleading marketing claims.

Thursday, June 23, 2016

Baldwin’s basic
proposition is that there has been a long history of struggles between creators,
distributors and the public, and a related struggle between the idea of
Continental authors’ rights (fundamentally moral) and UK/US copyrights (fundamentally
economic). The book is full of tidbits
about copyright and authors’ rights. For
example, I did not know that the French word for ghostwriters is “nègres,”
which is amazing. More detail, from JakeLamar at The Root:

The French started calling ghost writers nègres back in the 1700s, just as
colonialism and the slave trade were gaining momentum. The idea was that
writing under someone else’s name, erasing your own identity, was thankless
servitude on a par with the labor of colonialism’s black subjects and victims.

Speaking of slavery, the US was a pirate
nation for a long time, refusing to grant rights to foreign authors, and during
the Civil War the South found time to enact a more protective copyright law,
“[t]o distinguish itself from the North, cultivate an aristocratic and
nonmercantile national identity, and appeal to the British.” It didn’t work.

I liked Baldwin’s
argument that, if, as some authors claim, the ability to own Blackacre in perpetuity
justifies the ability to own Black Beauty
in perpetuity, then authors should also have to pay property tax every year. He’s
trying to understand what might seem to be a perplexing phenomenon: While
authors gained more rights over the past few centuries, our commitment to
absolutism in real property rights has declined with the acceptance of the
social aspects of private property, operationalized in zoning, rent control,
health and safety regulation, etc.

Other things I
didn’t know: German composers were free to set poems to music until 1965, when
the poets’ lobby achieved a law preventing this, perhaps connected to the
decline of Lieder, “the once archetypical German musical art form.” The US’s refusal to protect foreign authors
made American edition print runs as big or bigger than British print runs even
when the US had only half Britain’s population.
In 1775, almost as many copies of Blackstone’s Commentaries had been
sold in America as in England, and Dickens was later serialized on the back of
railroad times tables. Baldwin suggests
that higher prices in the UK were somewhat offset by its lending libraries,
whereas the greater distances separating people in the US meant that books had
to be bought rather than borrowed. I
loved the statement of Senator John Daniel of Virginia, opposing international
copyright in 1891: “It is a bastile [sic] of letters which is here constructed,
and not a republic.” Separately, but not
unrelatedly, Wordsworth insisted that his friends not lend copies of his books
to anyone who could afford to buy them.

Moral rights,
Baldwin shows, emerged in fascist Europe, part of the self-contradictory
conception fascists had of authors as cultural icons of the state, both worth
protecting (when they produced the right stuff) and ultimately subordinate to
the needs of the community. Authors’
honor deserved protection, but honor was defined by the community rather than
by the individual. Baldwin doesn’t
consider this a knockout strike against moral rights; after all, he notes,
Germany outlawed the death penalty at the prompting of a far-right party hoping
to spare Nazis. Moral rights were in
part a response to technological change, holding out hope for the author to fix
meaning. They were also, especially in
France, a response to specific legal issues, like divorce and
inheritance—surely a child, an ex-wife, or a creditor shouldn’t just get to
change an artist’s work to make it more marketable! This relatively autonomous legal character
may be connected to the fact that the authors’ rights/copyright conflict
doesn’t map well onto any traditional left/right divide: copyright loves the
ideology of the market, but also the public domain; authors’ rights sneer at
the market but support cultural conservatism.

But perpetual moral
rights lead to bizarre situations. “In
1988 the sole lineal descendant of the painter Achille Deveria (died 1857)
secured a court decision against the French magazine L’Express for printing a
portrait of Franz Liszt from 1832, removing its bottom part and adding some
color.” Also, the Danish director Jens
Jørgen Thorsen made a film on the life of Christ, enhanced “in the tediously
predictable way of would-be provocateurs—with brothels and orgies, Mao and
Uncle Sam.” Result? “The Danish parliament
and public asked whether the project was blasphemous and if it violated the
moral rights of the authors of the gospels of Matthew, Mark, Luke, and John
(whoever they were).”

This leads Baldwin
to a more significant theoretical point: moral rights begin as highly
individualistic, reinforcing “the author’s claim to enforce the singularity of
his vision even after death.” But time
marches on, despite the claims of descendants and heirs. Ultimately, some representative of the
broader society steps in “to preserve what by now—if he remained of
interest—had become the author’s position in a canon.… [C]ultural bureaucrats
safeguarded not his individual vision, but a socialized understanding of where
he fit in the pantheon.” Authors’ rights
hardened in Europe in the 1950s and 60s, when “France and Germany sought to
distinguish their nascent postwar democracies both from their totalitarian
predecessors and from what they and their facist forbears alike saw as the
Anglophone world’s crass commercialization of culture.” They abandoned the fascists’ populism and
embraced a moral rights of elitism, preventing any debate on balancing the
interests of the author and the audience for a long time after WWII.

By contrast, Britain
and America had an audience focus; “[r]ights of aesthetic control were shunned
as fanciful and needless concessions to foppish artistes.” Only when the US became such a major content
producer that economic realities drove us to accede to Berne did we pretend to
recognize moral rights. Hollywood
enthusiastically embraced the strong rights and long terms of Europe, without
moral rights. But, though expansive
copyright is often considered an American export, it can also be seen as a
Europeanization of rights, just as the U.S. ultimately adopted the European
first-to-file patent regime (and, though he doesn’t mention it, a more
registration-based trademark system). As
Baldwin points out, American positions actually lost out in GATT on performers’
rights (included) and favoritism for local cultural productions (preserved, as
a bastion against American media intrusion).
Meanwhile, the magpie/collaborative nature of film forced Europe to
adjust its former model of the individual author and the printer, bringing
Continental and Anglo approaches closer together. And then digitization unsettled balances all
over—including on the Continent, where skeptics such as the Pirate Party have
finally asked whether authors’ rights have gone too far.

Baldwin takes the
long view, arguing that technological disruptions have occurred before, as has
the democratization of media, often to the same laments/predictions of utopia
just around the corner. Washington Irving’s
“The Mutability of Literature” announced the age of “excessive multiplication,”
where freedom from parchment and quill made “every one a writer, and enabled
every mind to pour itself into print, and diffuse itself over the whole
intellectual world”—in 1819. In 1933, a
French observer lamented that recorded music was omnipresent, yet authors
hadn’t been “rewarded in proportion to this enormous expansion of consumption.”
Truly, there is nothing new under the sun.

Baldwin sees the aim
of Google Books as Dionysian—to dissolve all books into a greater carnival of
knowledge, and he’s a bit suspicious, though not condemnatory. In fact, he’s suspicious of all sides, who
generally look out for their own interests as readers, authors, publishers,
intermediaries, etc. and not for the overall good. And watch out, Twilight and Fifty Shades
critics: “At no moment do we more date our selves than when we draw the line
between culture and barbarism. Your artistic abuses are your children’s
classics.”

One nit to pick when
he gets to American academics, whose generally restrictionist views he
attributes to not needing to sell books to make a living—Carol Rose is not, as
he strongly implies, a “retooled humanities PhD[], refugee[] from the academic
downturn of the 1980s and ‘90s,” nor would I consider her “heavily influenced
by literary theories from English and comparative literature departments.” She’s one of our most eminent property
scholars and as hard-nosed a realist as one might hope to find.

In Baldwin’s view,
the lack of elite/academic support for less expansive authors’ rights regimes
in Europe meant that resistance, when it did come, was even more populist, in the
form of Pirate Parties. Of course, the U.S.
also got Google arguing in more corporatist terms in favor of “balanced”
copyright. To Baldwin, the Anglo
perspective is not just that of crass commerce, but also populist/democratic;
both of those features lead to pressure
to limit authors’ rights and see copyright as an economic bargain. I’m reminded of the time I heard proud
expansionist Hugh Hansen decry the expansion of the
franchise from white male
property owners because the rest of us were more likely to want to limit IP
rights.

Somewhat inexplicably
to my mind, Baldwin claims that in the U.S., “it was the salaried
intelligentsia which dominated the airwaves” in discourse about copyright,
since “[n]o well-organized class of literati had sprung forth in
nineteenth-century America.” But that’s
only true if you only focus on writers of texts, as opposed to performers,
directors, etc., who do very well for themselves in arguing for more
rights. And, as he later points out,
most authors can’t survive on royalties in any Western country, no matter how
strongly it protects authors’ rights; patronage and self-patronage is the usual
name of the game, so that can’t really explain the Anglo/Continental divide in
academic perspectives. His conclusion
that only the salaried can advocate for freedom misses voices like Cory
Doctorow and Becky Boop, and appears tied to his apparent belief that
self-interest underlies everyone’s positions.
(Because claims about the economic impact of copyright are so common, I
did like his point that “American colleges and universities employ ten times as
many people as the motion picture and recording industries.”)

I also liked
Baldwin’s point that, in fighting English hegemony online, the French turned to
claims for “diversity” rather than claims for the preeminence of French
language and culture. Ironically, American films fund French ones because the
French government taxes media, then subsidizes French media; that intertwines
the two cultures in a very practical way.
In another irony, French objections to Google Books meant that the project
became even more English-heavy, rather than more evenhanded—German books make
up more than 12% of Harvard’s collection, and if fully digitized would match
the entire University of Heidelberg library.
But French and German books were removed because of publishers’
objections. Google’s project violates
French law because its short quotation exception didn’t apply to random
snippets, and presenting excerpts violated the moral right of integrity; in a bit
of hypocrisy, the French court determined that publishers, not authors, held
the rights to digital dissemination and thus could sue even though such blanket
transfers are generally not approved in European law.

Baldwin reserves his greatest condemnation
for the greediness of the big publishers, mostly European, who monopolize
scientific publishing, with profit margins of 35-40%, as well as for the German
publishers who charge large amounts to publish Ph.D dissertations, since
publication is required to make the dissertation official. He doesn’t have very nice words for the
French version of orphan works legislation, either; the stringent requirements
make the provision essentially useless, since it’s limited to certain
institutions, who must first conduct a diligent search, and must still pay
writers and publishers (somebody else’s money, by definition). Authors could refuse permission to digitize,
and a senator explained that an author who’d written something regrettable
during the occupation by the Nazis should be able to prevent it from reappearing. “Rarely had the unappetizing aspects of moral
rights been so baldly stated.” Ultimately, he concludes rather mildly that there’s room for more pro-public reform, but the real value here is in the journey.

Tuesday, June 21, 2016

Bank of North
Carolina sought a declaratory judgment against BNC National Bank to settle
rights in the BNC mark, and BNC National Bank sought a preliminary injunction
to keep Bank of North Carolina from rebranding its North Carolina operations
from “Bank of North Carolina” to “BNC Bank.”

Bank of North
Carolina, a commercial bank incorporated and chartered under the laws of North
Carolina, opened its doors in North Carolina in 1991. In 2010, it opened branches in South Carolina
and Virginia. In 2011, Bank of North Carolina it registered a BNC BANK word and
design mark in connection with banking services:

In South Carolina and
Virginia, Bank of North Carolina is known as “BNC Bank,” and it announced plans
to rebrand its North Carolina operations from “Bank of North Carolina” to “BNC
Bank” as well.

BNC National Bank is
a federally chartered bank with branches in North Dakota, Minnesota, and
Arizona. It adopted its current name in 1995. In December 2014 and January
2015, BNC National Bank filed federal trademark applications for the word marks
BNC and BNC NATIONAL BANK, in connection with banking and financial services. Bank
of North Carolina’s opposition was suspended for this case.

BNC National Bank,
the court concluded, couldn’t show likely success as to its prior ownership of
a valid mark in North Carolina. Use
requires deliberate and continuous use.
BNC National Bank’s evidence was as follows: by 1996, it had three
general banking accounts linked to addresses in Norh Carolina. In 2001, it had 13 such accounts. In 2016, it had 54 such accounts. BNC National Bank closed its first mortgage
loan in North Carolina in 2008 and consistently closed mortgage loans in the
state every year thereafter. BNC National Bank also had at least one wealth
management customer in North Carolina in 2007.
BNC National Bank argued that it used the BNC marks in North Carolina
when it communicates with its North Carolina customers through account
statements, notices, brochures, and business cards, delivered through mail,
email, and BNC National Bank’s website, as well as its mobile banking
application. The earliest communication BNC National Bank may have mailed to
North Carolina was a brochure informing customers of BNC Bank Line, a free
service that allows customers to make account inquiries and transactions over
the phone, mailed in either December 1995 or January 1996.

Bank of North
Carolina claimed to have used the BNC mark “[a]t least as early as 1995.” Shortly
after opening in 1995, it introduced BNC Free (a free checking account) and BNC
Mortgage (a small mortgage business). In September 1992, when Bank of North
Carolina moved from a temporary location to its headquarters, a VP testified
that he remembered hanging BNC Free and BNC Mortgage banners on the front of
the new building. BNC Free and BNC Mortgage were also part of the marketing for
a new branch opened in 1995.

Given this evidence,
BNC National Bank didn’t meet its burden of demonstrating it was likely to
succeed in proving ownership of the BNC marks in North Carolina. The evidence
as of 1996 boiled down to three general banking accounts with North Carolina
addresses plus regular communications with customers bearing the BNC marks. But BNC National Bank presented no evidence
that its North Carolina customers actually received communications bearing the
marks. Furthermore, Bank of North Carolina’s evidence called into question
whether even 1996 would suffice to give BNC National Bank priority. The court also questioned whether BNC
National Bank’s use of the marks was either deliberate or continuous. BNC
National Bank didn’t know how it has acquired customers in North Carolina, or whether
it had any customers in North Carolina in the years immediately following 1996.
“This showing does not suggest
deliberate and continuous use; rather, it appears more sporadic, casual, and
transitory.”

In a footnote, the
court noted that Belmora didn’t
require ownership of trademark rights to bring a §43(a)(1) claim. However, Belmora
emphasized that it was “not a trademark infringement case,” and this is.

Then, even if BNC
National Bank could claim priority, the court found that it couldn’t show
likely success on confusion. When
evaluating likelihood of confusion, “it is important to remember that
‘trademark infringement protects only against mistaken purchasing decisions and
not against confusion generally.’ ”

Similarity of the
marks weighed in favor of finding confusion, since BNC was the dominant portion
of each mark, and the parties directly competed, also favoring a confusion
finding. However, BNC National Bank didn’t
show that its marks had any strength in North Carolina, and there was no intent
to confuse, weighing against likely confusion.

BNC National Bank focused
on evidence of actual confusion. However, “[i]f there is a very large volume of
contacts or transactions which could give rise to confusion and there is only a
handful of instances of actual confusion, the evidence of actual confusion may
receive relatively little weight.”

BNC National Bank claimed
that, from July 2015 to March 2016, its employees kept track of over one
hundred instances of alleged confusion. The court found many of these entries
to be incomprehensible. “Several of
these entries state only ‘N/A.’ Others include short phrases like ‘North
Carolina’ or ‘Looked on internet,’ which convey little information and require
the Court to speculate as to what happened in each instance.” But they seemed to involve instances where a
Bank of North Carolina customer mistakenly called BNC National Bank or visited
BNC National Bank’s website.

Also, a Twitter user
posted a tweet complaining that “BNC has the worst online banking setup ever.” She
tagged BNC National Bank in her post, but clarified that she was talking about
“BNC National Bank located in SC.” A vendor emailed Bank of North Carolina but
mistakenly copied BNC National Bank employees on the email. A professional
auditing company seeking to verify confidential information related to a Bank
of North Carolina customer mailed its request to BNC National Bank instead. And
a South Carolina resident applied on BNC National Bank’s website to open a
checking account, thinking she was applying to open an account with Bank of
North Carolina.

Was this the type of
confusion against which the Lanham Act was designed to protect? The Fourth Circuit has cautioned, “trademark
infringement protects only against mistaken purchasing decisions and not
against confusion generally.” When there are mistaken calls and letters from
people attempting to reach a different party with a similar name, there still
needs to be evidence linking “the confusion evinced by the calls to any
potential or actual effect on consumers’ purchasing decisions.” There wasn’t any here:

While these individuals contacted the wrong bank, there is no evidence
they were confused about the source of their banking services. That is, while
these individuals may have believed BNC National Bank’s phone number, website,
and Twitter handle belonged to Bank of North Carolina, there is no indication
that they believed they were banking with BNC National Bank, rather than Bank
of North Carolina. Similarly, there is no indication that the vendor and
professional auditing company emailed or mailed information meant for Bank of
North Carolina to BNC National Bank under the belief they were doing business
with BNC National Bank. At most, this evidence suggests perhaps a lack of
careful attention on the part of the companies, not confusion in the minds of
consumers.

The only relevant evidence
was the individual in South Carolina who attempted to open a checking account
with Bank of North Carolina by submitting an application on BNC National Bank’s
website. “This evidence may suggest a mistaken purchasing decision.” But, given that both banks had opened
thousands of bank accounts, a single instance of confusion carried little
weight. “Quite simply, there is little indication that consumers are likely to
be confused about ‘the origin of the goods or services’ offered by each bank.” [Another instance of a court shrinking the
concept of confusion to reach a result it considers just. I have no quibble
with this result! But compare the broad concept of confusion over
affiliation/association recently reemphasized by the Second Circuit.]

Does this infringe any rights Apple might have? We know the trade dress is functional for phones; I would argue that the trade dress is functional for realistic toys as well (and possibly more so, given what a kid could do with a sharp edge). And the design patents? What about dilution for the name "iPhoney"?

Re:create
Coalition’s How It Works: Understanding Copyright Law in the New Creative
Economy

Alex Feerst,
Corporate Counsel, Medium: Medium strives to present a range of options for
community-driven and commercial and in-between writing. Porous: some writers
have found ways into pro and semi-pro careers.

Katie Oyama, Sr.
Policy Counsel, Google: Showed a video about the Missouri Star Quilting Co., whose success drives a whole town’s and
it’s all because of YouTube. YT allows
content creators to experiment at lower costs; allows time-shifting by
comedians (e.g., John Oliver); opens global markets. Psy’s Gagnam Style was the
first billion-view video, and had enormous effect on an entire genre: looking
at metrics, K-Pop moved outside Korea in a big way; increased ability to
interact w/fans.

Betsy Rosenblatt,
Legal Director, Organization for Transformative Works: 700,000 registered users on AO3, 150
million page views/week, all through volunteers. Fandom brings people together who wouldn’t
have found each other; underrepresented groups in particular. Find audience of
those who love what they love; gift economy isn’t about making a living, but
about making yourself.

Prince: She never
thought she’d have an impact like this, but found people were watching to help
themselves feel better.

Rosenblatt: Money
isn’t the whole story. Online creativity can/does lead to financial success,
but also creativity, selfhood even without commercial success—we need all the
options.

Feerst: Low-cost
production means that content can go viral; open letter to CEO on Medium went
viral and the company raised people’s salaries—the effects are unpredictable.

Oyama: secondary
markets: people can gain audience, which sometimes becomes part of the overall
business model; YouTubers getting book deals.

Rosenblatt: we collected powerful stories from around the
world; people told us that
making transformative fanworks literally saved their lives. People talked about depression, about not
knowing others shared their sexual identities, about how no one was
representing them in major media. One wrote stories about the X-Men and being
in a wheelchair and found others to talk about her experiences—connecting via
connection to a superhero in that situation.

Prince: discussed an
instance in which a viewer imagined having her and other vloggers as friends in
high school—he felt accepted with us.

Feerst: Running your
own website is difficult. Instead, you
can sit inside our network for distribution via Twitter etc. Value of creating
within network even fro new media launches—Bill Simmons from ESPN is building
on Grantland model—allows interaction between market sectors, finding new
voices.

Oyama: Disney used
YouTube well to reestablish Frozen, which topped box office for longer than
usual. 90% of Content ID matches now
stay up; ½ of music revenue on YT comes from UGC.

Prince: Fair use is
really important: reaction channels are a new phenomenon, polarizing—sometimes
it may be infringing but often it’s critical commentary. She’s had a quote from Buzzfeed generate a
Content ID block even though she was talking over the clip and it was a short
clip for commentary. When your voice can be blocked, fair use is a huge issue.
Content ID is only available to those with a lot of content—it favors large
companies over small.

Oyama: On balance,
US system is remarkable in how it lets creators thrive. New economic sectors based on fair use are
growing. Google search snippets depend
on fair use. Safe harbors are also core
protections for free speech; YT has 400 hours/minute uploaded and couldn’t work
otherwise. §512 also allows small
companies to grow; this is under threat outside the US.

Rosenblatt: Fair use is designed to protect the 1A. The OTW believes we can
screen notices for legitimacy and not just automatically take stuff down. The
people who come to us often feel voiceless; they fear counternotice in a system
they already don’t trust.

Prince: Privacy is
important. Counternotice requires revealing name/location. Someone figured out
her location and sent a false takedown using a username referencing the Boston
Bombing: clearly threatening.
Counternotice required revealing personal info. Result: Chilling effect and
self-censorship. Multiple strikes filed
at once can be particularly damaging, because the DMCA requires repeat
offenders to be punished; your account can be shut down before you can respond.

Josh Lamel,
Re:create director: We’ve heard that over 50% of Amazon DMCA notices are by
competitors attempting to keep competing books from being sold—being off for 48
hours can kill a book’s rankings, which are key to its ability to be noticed.
[This is important and not well understood yet in the policy space: the
profiles of DMCA notices are very different across services. YT receives
different notices from Google Web Search, which is different from Google Image
Search, which is different from Wikipedia, which is different from Wordpress.]

Prince: Same thing
happens on YT for ranking. Can be weeks
you’re gone; if you’re not growing you’re not picked up by the algorithm.

Oyama: worst thing
for a startup is to change the rules. Government obligation doesn’t work in
many circumstances. It’s technically impossible, and doesn’t account for fair
use or licensing. SOPA died in part for these concerns. There are some hosted platforms that do
functionally have staydown, with Content ID, but that doesn’t work for search
where we don’t have fingerprints, for startups, for nonprofits.

Rosenblatt: “notice
and staydown” is a hollow phrase, too broad and too narrow. They mean mandatory
monitoring and filtering. Piracy is bad, but once you require monitoring and
filtering you shut down small platforms. We couldn’t do it, especially not in a
way that accounted for fair use.
Collateral damage is fair use—using a sledgehammer to remove a barnacle.

Prince: Staydown
doesn’t work. I downgraded the Buzzfeed
video and messed with the audio until it went up. Evasion means it doesn’t work, and also
chills speech; many people worry about getting blocked.

Feerst: Saying “build
a machine to figure out fair use” isn’t something you can do even with $60
million. Staydown requirements would
skew towards established incumbents. We
have disappointments with the DMCA but it provides a structure we can use. The problem is how people behave when
statutory damages etc. feed up into creators’ behavior, such as fear of using a
counternotice.

Oyama: 512 is most critical
for startups that haven’t been invented yet (and aren’t here to defend
themselves).

Rosenblatt: Think
about protecting people’s ability to express themselves. Who gets to speak?
Those who already have a voice or those who don’t?

Prince: need
clarity, especially globally—creators are in different countries.

Q: How do DMCA wars
on YT start?

Prince: Revenue
comes from being recommended on related videos, etc. DMCA claim stops competitor from appearing on
search. Separately, Content ID means
people can claim your video and get the $ for it. Music owner may claim 100% of
revenue based on 30 seconds in hour long video.

Q: Harsher laws in
other countries. How can global companies protect creators against those
regimes?

Oyama: Other
countries do have fair dealing; we are seeing startups and entrepreneurs
explain that they need safe harbors as well. Should also be very focused on
licensing regimes. We have resources to have teams for each country, but music
and film systems are extremely fragmented. We’ve given $5 billion to music from
YT, but it has taken huge time and effort.

Feerst: We operate
in the US, though we’re online and have goals to expand. One reason platforms
largely grew up in the US is the DMCA.
Largely we are less able to protect users overseas. Small companies with
no expansion plans overseas may roll the dice, but companies that hope to grow
have to make choices.

Monday, June 20, 2016

What is the
difference between a plausible and implausible allegation of likely confusion
over endorsement? Beats me! Here, Hart’s pro se complaint alleged that
Amazon violated the Lanham Act by allowing resales of counterfeit copies of his
books, Vagabond Natural and Vagabond Spiritual.

First, Hart didn’t
plausibly allege that the copies were counterfeit, making Amazon’s conduct
legitimate under the first sale doctrine.
All he had was “his own conclusory say-so.” Resales of legitimate goods don’t confuse
about source or qualities.

Even without first
sale, the confusion allegations failed.
Hart alleged that Amazon’s sales caused endorsement confusion by falsely
suggesting that Hart was affiliated with Amazon. “Plaintiff must be able to
show that the public believe[s] that the mark’s owner sponsored or otherwise
approved of the use of the trademark.” Because the claim relied on individual third-party
sellers reselling Hart’s book, it wasn’t plausible:

The mere fact that Amazon offers a platform to third-party sellers to
sell various products and, subsequently, those individuals sold Plaintiff’s
books, does not imply that Plaintiff has endorsed Amazon or has any specific
affiliation with Amazon. This is not the reality of commerce. As a comparison,
a shopper at a bookstore does not automatically believe that just because a
used book is appearing at the store, the author is expressly endorsing that
store. The same is true for a book that is resold on Amazon.

Note how limited
this is: the analysis would apparently need to differ if Amazon were selling
the products directly. If taken
seriously, of course, that could destroy first sale, at least where the goods
had not actually been used before resale.

State law claims
also failed, including a promissory estoppel claim based on Amazon’s alleged
representation that it would remove Hart’s books from its website within 2-3
days of receiving his request to remove the books. Amazon wrote: “Thank you for
your message. Please be advised that we are in the process of removing [Vagabond
Natural and Vagabond Spiritual] ... from Amazon.com.... It typically takes 2-3
days for a listing to disappear once it has been removed from our catalog. We
trust this will bring this matter to a close.”
There was no unambiguous promise that the process would only take 2-3
days, and Hart acknowledged that the books were eventually removed. “These allegations do not articulate a clear,
definite promise that would support a promissory estoppel claim.” [Useful guidance for those worried about promissory
estoppel claims evading §230.]

This case has
occasionally shown up in my Westclip, but this time I’m writing about it
because the court set forth specific designs that the defendants were allowed
to use as descriptive fair use.
Previously, the defendants were preliminarily enjoined from using
plaintiff SMRI’s STURGIS word mark, STURGIS BIKE WEEK, BLACK HILLS MOTOR
CLASSIC STURGIS RALLY & RACES BLACK HILLS S.D., STURGIS MOTORCYCLE RALLY,
STURGIS RALLY & RACES, or any colorable imitations (also covering
dilution). They were also enjoined from
using “Officially Licensed Sturgis,” “Authentic Sturgis,” “Legendary Sturgis,”
“Licensed Sturgis,” “Official Sturgis,” “Sturgis Central,” “Sturgis Motor
Classic,” and “Sturgis Rally” in any confusing way, and from using various
domain names such as AuthenticSturgis.com, Legendary-Sturgis.com, LicensedSturgis.com,
OfficialSturgis.com, SturgisCentral.com, SturgisMotorClassic.com, or SturgisRallyOnline.com.

I believe this is an example of infringing merchandise

SMRI’s registered
and common law trademarks were specifically limited to the motorcycle rally
event held annually in Sturgis, South Dakota. Thus, defendants were allowed to use “the name
Sturgis or other phrases which contain the name Sturgis in the distribution,
marketing and sale of non-rally-related Sturgis, South Dakota, products.” Since they were preliminarily enjoined
against infringement, the defendants had a heavier burden of showing they’d
avoided a colorable imitation or dilution than a non-enjoined party. (How do you show non-dilution? Also, how on
earth is this a famous mark among the general consuming public?) An adjudicated infringer must keep a safe
distance from the protected mark.

The court considered
several groups of symbols/art. First,
“Legendary South Dakota” (versus the enjoined “Legendary Sturgis”). The moving defendants argued that their use
now referred to the Wild West. The court
found that Sturgis was prehistorically and historically important enough, as
indicated by numerous volumes of history “dedicated to Sturgis and its environs
having nothing to do with the Sturgis Rally,” to make Sturgis “legendary” without
reference to the Rally. Thus, SMRI had
no right to block non-rally-related “Legendary Sturgis” or “Legendary Sturgis,
South Dakota.”

Next: “Sturgis,
South Dakota.” SMRI argued that the
defendants shouldn’t be able to remove “Sturgis Motor Classic” and use
“Sturgis, South Dakota” on the very same, or nearly identical, designs they previously
sold as “rally merchandise,” since SMRI’s rights covered STURGIS on motorcycle
rally-related goods. SMRI also objected
to the use of “Sturgis” in a font much larger than “South Dakota.” SMRI wanted any “Sturgis, South Dakota”
product to “add some non-rally related indicia,” because the geographical term,
standing alone, wasn’t at a safe distance.
Further, SMRI argued that use of “skulls, stylized eagles, [and] American
flags” on rally-related goods now made those symbols off-limits.

The court disagreed.
Though SMRI won a jury trial, SMRI’s lawyer “specifically told the jury that
plaintiff’s trademark claims were not asserted against the defendants or others
‘using Sturgis fairly to denote their geographic location. That’s a fair use.’ The
preliminary injunction was issued with that concession, the limitations of
SMRI’s trademark registrations with the United States Patent and Trademark
Office, and the jury verdict in mind.”
SMRI’s rights didn’t cover American flags, bald eagles, gothic
artwork/fonts, the skull and crossbones, flames, pistols, or any combination
thereof. “Whether some members of the
motorcycle community, rally attendees or SMRI may envision these symbols and
artwork as signs of the rally, that argument was not the basis of plaintiff’s
claims at trial and not the foundation for the jury’s verdict in favor of
SMRI.”

The defendants’
proposed uses were consistent with the language and intent of the preliminary
injunction. The symbols/art didn’t
imitate or resemble SMRI’s marks and were a “safe distance” from infringement. [Even
though they clearly are concepts that motorcycle-related art uses heavily. Interesting limit on unfair competition—one
might see this as almost the inverse of cases like Belmora. Having stayed away
from plaintiff’s precise mark, the defendant is entitled to use generic terms;
no more is required, and if generic terms happen to invoke associations with
the mark, that’s too bad for plaintiff.]

Nice thorough
opinion playing out the interaction between Lexmark
and the definition of “commercial advertising or promotion.”The USDA has the National Organic Program, for
eggs “Certified Organic.” The American Humane Association has a standard for
pasture-raised eggs allowing those who use it to claim “American Humane
Certified™” or “Pasture Raised.” Humane
Farm Animal Care, a nonprofit, certifies eggs as “Certified Humane®.” Handsome Brook sells egs with the USDA organic
and AHA pasture-raised and humane labels, but not the HFAC Certified Humane
label.

Producers that pass
HFAC’s inspection may use the Certified Humane® logo on their eggs; the
licensing agreement is renewable annually and application/inspection fees must
be paid annually to renew, as well as $.05 per case of thirty dozen eggs.HFAC’s largest source of revenue in 2013 and
2014 was the licensing fees paid based on the quantity of product sold with the
HFAC logo.

Handsome Brook doesn’t
use the HFAC logo.Some of its eggs are
packaged in Illinois, at Phil’s Fresh Eggs, which packages eggs from three
farmers, each of which is certified organic under the USDA program and also
AHA-certified, as is Handsome Brook.None of Handsome Brook’s eggs are HFAC-certified, though HFAC does
certify other farmers whose eggs are packaged at Phil’s Fresh Eggs.

In May 2016, Phil’s
Fresh Eggs’ Vice President contacted HFAC to update its certification. During
the resulting inspection, the inspector observed that Handsome Brook’s USDA
certification was from 2013 and an annual update was not on file, and though
Handsome Brook had an AHA certification on file, the three source farms did
not. The inspector stated that she could not verify that Handsome Brook’s eggs
were “American Humane Certified” because the AHA had not inspected Phil’s Fresh
Eggs.

However, Handsome
Brook and its three suppliers were in fact all appropriately certified under the USDA and AHA programs; Handsome
Brook emailed the suppliers’ USDA certifications to Phil’s Fresh Eggs five
months before the audit, and the AHA’s publicly viewable website listed
Handsome Brook’s three suppliers as “currently considered certified under the
umbrella of Handsome Brook Farm, LLC.” HFAC’s VP believed that the audit report confirmed
a complaint she received about a month earlier about Handsome Brook mislabeling
its eggs, so she drafted an email titled “Unverified Pasture Raised Label
Claims”:

I am writing you to share some potentially troubling news about one of
your egg suppliers, Handsome Brook Farms. Based upon a whistleblower complaint
we recently conducted a traceability inspection of a packaging plant that packs
Certified Humane® eggs and also packs Handsome Brook Farm’s (HBF) eggs. It came
to our attention that the “Pasture Raised” claims on the Handsome Brook cartons
could not be verified. In fact, of the three producers whose eggs were being
packed into HBF cartons, none were pasture raised. These eggs had tags that
stated, “Certified Organic” but our auditors found that the organic
certification was not current.

The email continued
that the auditor found “there was no validation that the eggs going into HBF
cartons were from [AHA] certified farms,” that there was no update of Handsome
Brook’s USDA certification on file at Phil’s Fresh Eggs, and that the
“veracity” of Handsome Brook’s American Humane Certified labeling claim “could
not be substantiated.” It ended:

I hope you will reconsider changing suppliers. Producers who are
Certified Humane® undergo traceability audits to verify that every egg that
goes in every carton that has claims such as “free range” or “pasture raised”
are verified by our inspectors to be exactly that. This in turn protects you.

She sent the email
to 69 people at 39 companies, including the top 10 conventional grocery chains
in the United States. She chose them because they were all “retailers who were
thinking of switching from actual pasture-raised laying hens to the Handsome
Brook eggs.” “The email had the intended
effect,” causing Handsome Brook to lose customers; Whole Foods temporarily
pulled Handsome Brook’s eggs from its shelves, while a large group of retailers
indefinitely pulled the eggs, and a prospective customer indefinitely delayed
plans to launch HB’s eggs in its stores.

Handsome Brook sued
for false advertising, tortious interference, and trade libel.Previously, the court granted a TRO against
further dissemination of the email; in this opinion, it granted a preliminary
injunction.

The court used the Gordon & Breach test to determine
whether this was “advertising or promotion.”HFAC argued that the email did more than propose a commercial
transaction, because its primary purpose was to support humane animal
treatment.It also argued that its
certification fees didn’t provide a sufficient economic incentive for the email
to be commercial in nature.

The court
disagreed.HFAC pursued its anmal
welfare objective through “distinctly commercial means.”It sought to leverage consumer demand for
humane treatment to encourage producers to adhere to its standards.“Thus both the achievement of HFAC’s public
interest objective and its economic survival critically depend upon its
licensing agreements with producers.”In
light of that economic reality, the email was primarily commercial in
nature.In the VP’s own words, she sent
the email to protect the interests of her own licensees. The context
additionally supported calling the email commercial, since the VP intentionally
sent it “to retailers who were thinking of switching from actual pasture-raised
laying hens to the Handsome Brook eggs.”

Gordon & Breach also asks whether the parties are in
commercial competition.The court,
citing Lexmark, rejected the idea
that the parties have to compete at the same level of the distribution chain.Although Lexmark
expressly disclaimed any comment on whether the communications before it
constituted “commercial advertising or promotion,” the court here sensibly
pointed out that

it would be a perplexing decision by the Supreme Court to conclude that
indirect competitors had standing to bring a Lanham Act claim, but those same
plaintiffs’ claims would necessarily fail on the merits due to lack of direct
competition. Many post-Lexmark cases
have seized on that intuitive conclusion and the absence of a direct-competitor
requirement in the plain language of § 1125(a)(1)(B) to conclude that such a
relationship is not necessary to show commercial advertising or promotion.

Indeed, the court
noted, no post-Lexmark case finds the
absence of a direct-competitor relationship to be dispositive in a Lanham Act
claim. The competitive relationship in this case was sufficient: HFAC-certified
eggs compete directly with Handsome Brook’s eggs.

HFAC argued that its
speech wasn’t made “for the purpose of influencing consumers to buy defendant’s
goods or services,” as required by Gordon
& Breach, because it only promoted a class of goods and would only
tangentially raise revenue for HFAC.But
this wasn’t a nonprofit fundraising letter to prospective donors.Further, the email promoted HFAC’s product:
the license it offered licensees.“It is
true that the license promotes a public interest, but it is commercial
nonetheless.” s

And the email was
disseminated sufficiently to constitute advertising and promotion within the
relevant industry, even if “many national and countless regional and local
retailers” weren’t included: the top ten conventional grocery chains, over
16,000 stores nationwide, were included.HFAC argued that it only targeted retailers that already carried Humane
Certified eggs, but a targeted ad is still an ad.HFAC specifically chose retailers that were
considering switching to Handsome Brooks eggs, which “clearly demonstrates an
attempt to penetrate the relevant market.”

As for falsity, the
email falsely stated that (1) “of the three producers whose eggs were being
packed into HBF cartons, none were pasture raised,” (2) “[b]ased upon a whistleblower complaint we recently conducted a
traceability inspection of a packing plant that packs Certified Humane® eggs
and also packs Handsome Brook Farm’s (HBF) eggs,” and (3) Handsome Brook eggs
inspected at Phil’s Fresh Eggs were being mislabeled as certified organic. This
last was stated by necessary implication: the email said that Handsome Brook’s
organic certification documentation was issued in 2013 and “no annual update
was on file” and also that “our auditors found that the organic certification
was not current.” In fact, Handsome Brook sent its suppliers’ current
certificates several months before the inspection, and even if the auditor
didn’t find them in the file, the statements created the impression that
Handsome Brook was mislabeling its eggs.

There was no dispute
about materiality, which was supported by intuition, HFAC’s own business model,
and HFAC’s own statements about the importance of reputation “[i]n the
ethically-sourced products space.”HFAC’s VP testified that she sent the email, in the court’s words, “hoping
retailers would find the allegations of mislabeling relevant in their
purchasing decision.”There was also no
dispute about actual deception and injury.

Handsome Brook also
showed irreparable injury:

Plaintiff is a young, but quickly growing company. The email had a
clear effect on that growth and Handsome Brook’s goodwill, causing Handsome
Brook to lose one customer temporarily and two large customers indefinitely.
Those injuries are irreparable and would likely compound if the email is
disseminated further.

Nor was prohibiting
further dissemination enough.Handsome
Brook offered evidence that the information in the email “has now seeped even
beyond the initial recipients,” having been forwarded among its
competitors.A broker reported that
rumors have been repeated at an industry trade show that “Handsome Brook Farm
had failed a Certified Humane audit.” Each forward or word-of-mouth
communication threatened “additional loss of goodwill, customers, and growth
opportunities,” which were irreparable injuries. Handsome Brook estimated that
the monthly loss of revenue from even one grocer pulling Handsome Brook eggs was
in the hundreds of thousands of dollars. “Even if this number could be
sufficiently estimated so as to be recoverable at trial, there is a very small
likelihood that HFAC could satisfy such a judgment if the injuries continue to
swell, as HFAC is a nonprofit operating at a [deficit].”

Handsome Brook’s own
defense of itself wasn’t sufficient.“HFAC’s
email directly impugns Handsome Brook’s credibility, such that an email from
Handsome Brook is not likely to have the intended palliative effect.”HFAC’s accusation gave the claim credibility;
the same credible source was required to halt the harm.

Thus, the balance of
the equities favored ordering HFAC to issue a corrective email.Though that might harm its reputation, that
was HFAC’s self-inflicted injury, by sending the email after performing only a
cursory investigation.The auditor or
the VP “could have made some effort to contact Handsome Brook, Handsome Brook’s
suppliers, AHA, the USDA, regional certifying organizations, or publicly
available information to verify the conclusions reached in the audit.” However,
an order requiring HFAC to post a corrective statement on its website was too
much; it would just be public shaming.The corrective email would also further the public interest in avoiding
false advertising.

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